Royal Bank of Scotland Weighs Bid for National Westminster

By ANDREW ROSS SORKIN

Published: November 29, 1999

LONDON, Nov. 28—
The Royal Bank of Scotland Group is expected to make a $41.71 billion hostile bid for National Westminster Bank as early as Monday, executives who have been informed about the plan said here tonight.

If Royal Bank of Scotland proceeds with an offer, it will touch off a bidding war for NatWest. Its hometown rival, the Bank of Scotland, has already made several offers for NatWest, Britain's third-largest bank, but has been repeatedly spurned.

This weekend saw last-minute efforts between Royal Bank of Scotland and NatWest to broker a friendly merger. On Saturday morning, George R. Mathewson and Fred Goodwin, the chief executive and chief operating officer of Royal Bank of Scotland, respectively, flew here from Edinburgh to meet with NatWest's chairman, Sir David Rowland.

Hoping to trump the Bank of Scotland's most recent bid -- $41.3 billion, which NatWest rejected on Friday -- Royal Bank offered the equivalent of $41.71 billion. The proposal, worth about 15.78 [pounds] a share ($25.33), called for Royal Bank to give one of its own shares and 250 pence ($4.01) in cash for each share of Natwest, according to executives close to the talks.

But after much back and forth, Sir David dismissed the offer as too low, the executives said. NatWest hoped to hold out for $:16.50 ($26.49) a share and a larger cash component.

In a news conference this afternoon, Sir David acknowledged the talks.

''We concluded that the proposal as put forward did not warrant a recommendation from the board, and so we rejected the offer,'' he said. ''That's all I can say at this stage.''

But Ron Sandler, chief operating officer of NatWest, added, ''It's very easy to stand on a soapbox and promise completely unrealistic savings and performance targets,'' referring to Royal Bank's proposal. ''These involve substantial risks,'' he said.

A Royal Bank spokesman declined to comment.

If Royal Bank succeeds in acquiring NatWest, it would most likely sell many of Natwest's noncore assets, executives close to Royal Bank said. Those assets might include NatWest's fund management unit, Gartmore Investment Management; its investment banking unit, Greenwich NatWest; and its venture capital unit, NatWest Equity Partners, as well as Ulster Bank.

But NatWest has already said it would sell those assets as part of its defense strategy to thwart its Scottish suitors. Analysts estimate those units could raise about $6.6 billion.

Royal Bank has also drawn up plans to integrate the two banks' computer systems -- a major cost that NatWest noted as a reason to reject the Bank of Scotland's bid as inadequate.

One analyst expressed a widely held view that if Royal Bank makes a bid, it would be trumping the Bank of Scotland at its own game.

''I mean, they've been playing cat and mouse for almost two months already,'' said the analyst, who spoke on condition that he not be named. ''It almost serves the Bank of Scotland right for not sealing a deal earlier.''

Analysts say that Royal Bank can achieve greater cost savings than Bank of Scotland because it has more overlapping branches with NatWest. Royal Bank has 300 branches in England, while the Bank of Scotland has none.

Analysts also pointed out that, should the bidding escalate, Royal Bank has the support of Banco Santander Central Hispano, a Spanish bank that has about a 10 percent stake in Royal Bank. Executives close to Royal Bank said Banco Santander may provide some of the cash for the bid.

If Royal Bank does make an offer, it would reset the regulatory clock in the NatWest bidding. Based on earlier rumblings, British regulators had given Royal Bank a deadline of Dec. 8 to either make a specific offer for NatWest or hold its peace. Regulators had also imposed a Dec. 17 deadline on Bank of Scotland to make its best and final offer -- a deadline that would be removed if Royal Bank now enters the bidding in earnest.

On Saturday night, NatWest released what was to have been its final defense document in hopes of thwarting the Bank of Scotland. NatWest pledged to cut cost by $:525 million by 2002 and said it would buy back $:2 billion of its own shares. As part of its defense strategy, NatWest also said it would cut 15,000 jobs, up from 12,000 by 2002. The promised savings, however, still remain below the Bank of Scotland's stated goal of squeezing $:1.015 billion in costs from a combined company.

Mr. Sandler, the NatWest executive, defended his company's plan. ''At least 300 [pounds] million of what Bank of Scotland is claiming we know not to be achievable,'' he said. He also said that NatWest's profitability from its core operations was 21 percent higher than the Bank of Scotland's, implying that NatWest has a better grasp of the banking business than does its pursuer.

Shares of NatWest increased 3.2 percent, to 1,518 pence on Friday. Meanwhile, shares of Royal Bank dropped 1 percent, to 1,328 pence, and shares of the Bank of Scotland fell 5.6 percent to close at 724 pence on Friday.